Is Apple's brand valuation meaningless?

Measuring brand value is a nebulous business, but one thing is certain: in today’s disruptive and competitive environment, it counts for a great deal.

Late last year, an Australian university marketing professor strode up to the podium at the Festival of Marketing debate in London to deliver a message to three brand valuation experts. “What you do is bullshit,” he told them. Melbourne Business School associate professor of marketing Mark Ritson spent the next eight minutes criticising the methodologies of the three global brand valuation firms: Interbrand, Brand Finance and Millward Brown.

The three executives rebutted Ritson forcefully, but in a later vote, he won the crowd over – 52 per cent agreed with Ritson, 48 per cent with the brand valuers.

Ritson, one of marketing’s most iconoclastic figures, says he actually likes what the brand valuation firms are trying to do in theory and would love it to work. Whichever way he looks at it, though, their results don’t stack up.

In 2015, for instance, Apple was agreed by all three firms to be the world’s most valuable brand. Yet Interbrand valued it at US$170 billion, Millward Brown’s BrandZ at US$247 billion and Brand Finance at US$128 billion. That’s a big difference, Ritson notes.

To reinforce his point, Ritson uses the example of HP’s 2002 Compaq acquisition, citing data from trademark specialists Markables. HP’s deal valued the Compaq brand at about US$3 billion, not the US$9.8 billion at which Interbrand had valued it.

“I love the theory of brand valuation,” he says. “But in practice, it’s not fit for purpose.”

The intangibility of brands

It’s easy to see why people believe brands have a value. Drinkers may adopt a beer brand for life; plenty of drivers want a Porsche; a large slice of technology users buy Apple whenever they can.

In an age where you can pay an outsourcing specialist to create many of the goods and services you most desire – an era when we have more complex choices than ever before – brands might even be worth more than they used to be.

“The strongest brands are not necessarily the most valuable.”

Separating “brand value” from everything else about a company is no simple matter, though – and at times it can seem a pointless exercise. Accounting standards around the world say brand values cannot appear if they are internally generated. In the world of accounting, brand-building efforts remain just another expense in the P&L statement. Apple, for instance, records no value in its balance sheet for the value of its name.

On top of this, there’s the critique made by Markables CEO Christof Binder and UCLA marketing professor Dominique Hanssens last year: some of what looks like “brand value” actually represents the value of a business’s customer relationships. HP might sell its Compaq brand tomorrow, but it could retain all the historical data now sitting in HP’s databases.

Binder and Hanssens wrote on the Harvard Business Review website: “The value of ‘brand’ or ‘brand image’ as an entity distinct from the offering itself, we think, will diminish.”

Then there’s the critique of Ritson and other critics: if valuations carry meaning, why do valuation firms’ numbers vary so much?

Ritson’s dire appraisal of the big three valuation firms has not gone unanswered. Brand Finance CEO David Haigh has challenged him directly. In defence of ISO 10668, the global brand valuation standard, Haigh argues that it is used widely, and he challenges Ritson to take a look at equity analysts, who rarely agree on anything.

“No-one complains that one values Apple shares at $200 while another puts them at $1000,” he says.

Measuring brand power

Certainly, the three firms have different methodologies. Identifying those differences is not easy. Casper Wright, the managing partner, Australia & NZ, of Millward Brown’s marketing consultancy Millward Brown Vermeer, says the company has “a very robust methodology based on empirical data … but the exact way of doing it is a proprietary system – and they won’t even tell me”.

Mark Crowe, Brand Finance Australia’s managing director, will talk about his firm’s methodology – but it’s extremely complex. Brand Finance, alone among the three big firms, also uses the principles set out in the ISO 10668 standard.

Brand Finance’s ultimate valuation, though, rests heavily on the size of the fee a brand would command if it had to pay someone else to use it. The royalty is combined with forecast future revenues and “brand strength”.

What exactly is brand strength – or brand power, as Millward Brown calls it? Millward Brown says that brand power sustains brand value, and that power is how brands remain relevant in a climate of disruption. Brand Finance addresses strength with a debt agency-style grading from AAA to D. Its Brand Strength Index is based on marketing investment, brand equity (the goodwill accumulated with customers, staff and other stakeholders) and the impact of those on business performance.

According to Brand Finance’s assessment, Disney leapfrogged Lego in 2016 to rank number one globally for brand strength, fuelled by its purchase of Lucasfilm and the Star Wars franchise. Disney nevertheless ranks just 24 in the global valuation league, and Lego is way down the list at 324. The strongest brands are not necessarily the most valuable.

Brand strength seems to comes down to this: when something goes wrong, how does a company deal with it and how do consumers react? It is the factor that sees companies through trouble, change and market preferences.

Some corporate disasters are unsurvivable for a brand, says Cheung, citing Enron’s financial double-dealings. Many more are survivable. People have more faith in or love for one brand, or they simply judge companies’ faults and misdemeanours differently.

BP weathered the huge Deepwater Horizon oil spill scandal, Cheung notes. Coca-Cola and McDonald’s are truly powerful, Millward Brown argues, because they have won the battle of consumer concerns about health and kilojoule intake by “adjusting their products and communications”.

Commonwealth Bank of Australia was at the centre of twin scandals over its financial advice and insurance services, yet Crowe says its brand strength has actually improved this year.

Valuation in the 2000s

While the three firms’ methodologies may be opaque, there are some commonalities. The most obvious is that they do not decouple brand value from total enterprise value. The brands of many large Chinese concerns are rocketing up the brand value charts, simply because the companies behind them are big and getting bigger.

But what brand resonance do big Chinese domestic businesses have globally? Most would argue they have very little. Only Interbrand shows some variance here. If a company is big in China but nowhere else, it doesn’t make its top 100. The other two, however, say that if you’re big in China, you’re big globally.

The world’s fastest-growing brand, according to Brand Finance, is China’s Evergrande Group (real estate), up 112 per cent on last year but still largely unknown beyond its home borders. Interbrand, by contrast, puts Facebook as the world’s fastest-growing brand, up 54 per cent in 2015. Millward Brown also has it as the top riser, nearly doubling in value.

Where are the big disrupters – Uber and Airbnb? Both are household bywords, and Uber is now even a usable verb. Neither it nor Airbnb will figure in any lists, because they’re privately held.

It’s hard to believe that Uber is not a valuable global brand, especially if (as all the valuation firms are wont to say) consumer perceptions are all-important. But this is how the methodologies are set – if the numbers can’t be publicly derived, they will not figure on any of the big three’s lists. This may explain why Cheung dismisses Uber as a Silicon Valley “unicorn”. A big name counts for nothing without the commensurate big numbers.

From strength to strength

What also appears true of all firms’ valuations is that their top brands are growing exponentially. Driven by the likes of Apple and Google, Millward Brown’s top 100 most valuable global brands in 2015 increased 14 per cent in value to US$3.3 trillion, building on a 12 per cent rise a year earlier.

Whether or not they’re reliable, the league tables of valuations have an undeniable appeal. Can Google top Apple? Can Samsung beat them both? Can VW come back? The question remains, though, beyond entertainment, what is their real value?

Big in China is big everywhere

One of the obvious changes to the league tables in recent years has been the arrival of Asian brands, especially those from China. State-owned enterprises in telecommunications, financial services and oil and gas, most of them are unknown outside China.

Millward Brown says 10 years ago, only one Chinese brand ranked in its BrandZ Global Top 100 – China Mobile, the state-owned telecoms provider. Today, 14 Chinese brands are present. Chinese brands also figure highly in Brand Finance’s rankings and are among the best performers from any sector, with four of the top 10 fastest risers.

WeChat is a good example. Its user base grew more than 40 per cent between late 2014 and late 2015; it now has over 650 million users, with 70 million outside China.

“I love the theory of brand valuation. But in practice, it’s not fit for purpose.” Mark Ritson, Melbourne Business School

Brand Finance’s Mark Crowe says the Chinese are only now beginning to see the value of investing in their brands, and global perceptions toward them are changing. China’s banks, for instance, are now being more rigorously managed under the auspices of a strong regulator and enjoy greater standing among their Western and Japanese peers.

Chinese retail contenders such as Tencent, Alibaba and Baidu are all making waves in the top 100.

Millward Brown includes Alibaba in its retail category, because of its e-commerce dominance.

“E-commerce led a transformation of retail so radical that today the two most valuable retail brands – Alibaba and Amazon – operate no physical stores,” says the firm.

Of course, brand valuation firms all have different methodologies, and according to Interbrand’s data, Chinese firms have virtually no global clout at all. Only technology firm Huawei, which earns more abroad than it does in China, is present in its top 100 – it comes in at number 88.

Australia's musical chairs

There have been some changes in the strength and value of many Aussie brands, but in this market, it’s a case of musical chairs. The top 10 simply change places year on year. Barring some form of economic cataclysm, the Big Four banks, BHP and Telstra will always be there.

Only Brand Finance compiles Australia’s top 100 brands. The big change this year is Telstra’s climb to the top of the valuation rankings, taking over from Woolworths, which has held the top spot for seven consecutive years.

Brand Finance’s Mark Crowe says it’s the first time Telstra has been at the top – quite a turnaround for a company that was once the subject of consumer gripes.

“They’ve worked on their customer advocacy strategy and grown their brand strength,” he says. “Their brand value has grown significantly more than their enterprise value.”

Telstra revenues are only up 3.6 per cent on 2015, but the Telstra brand value has shot up from A$10.6 billion to A$14.5 billion this year, a 37 per cent rise.

CBA has dropped in brand-value terms, ceding its third position last year to rival ANZ. Crowe says that has nothing to do with recent scandals related to its life insurance division. ANZ’s brand has surged 25 per cent because of its larger presence in Asia.

Woolworths is the stand-out casualty, losing 4 per cent of its brand value and the top spot. Crowe says this has to do with competition from outside challengers, such as Aldi, as well as difficulties in maintaining its margins.

“Coles and Woolies are in the middle of discount wars,” says Crowe. Coles has also suffered, dropping from sixth position in 2015 to eighth this year.

Brand value does not always mean a company’s enterprise value – or market capitalisation – is rising. ANZ has lost 12 per cent of its enterprise value, while still jumping in brand value. Both NAB and Westpac have also gained in brand value, but lost enterprise value.

BHP, Wesfamers and Rio Tinto have lost on both fronts. In Rio Tinto’s case, it has lost 19 per cent in brand value, but only 2 per cent in enterprise value. Indeed, eight of the top 10 companies are worth less than last year.

Worth mentioning in the comeback stakes is Qantas, with the best brand performance of them all. The years of customer dissatisfaction, poor public relations and union disputes appear to be over. Its brand value was up a whopping 86 per cent this year.